Over the past year, tech darling, Apple has been increasing the prices for its devices, which has resulted in increased revenues, and a few months ago, it was the first company valued at USD 1 trillion! In increasing their prices, could other tech businesses, even Caribbean tech businesses – in some way – mimic Apple’s success?
Earlier this week, tech giant, Apple, held its second product launch of the 2018, where it announced the release of new versions of the company’s iPad Pro, Mac mini, and MacBook Air. Those three products had not been upgraded in years, and so the much-improved specifications and features would have been welcomed. However, what many had not foreseen was the sticker-shock that accompanied those new-and-improved devices.
The starting prices for both the iPad Pro and MacBook Air jumped by USD 200.00, in comparison to their predecessors, and there was a USD 300.00 increase in the starting price of the Mac mini (Source: Fortune). However, since most of us may be inclined to customise our purchase, the final spend is likely to be considerably more than we might initially anticipated.
Having said this, it should be noted that Apple increasing the prices of its devices is not new. The company did so last year, and again around six weeks ago when it announced its latest iPhones. In the September 2018 product launch event, the company indicated that the new iPhones would start at USD 750 (iPhone XR), USD 1,000 (iPhone XS) and USD 1,100 (for the iPhone XS Max), when just a year ago, the starting prices were USD 700, USD 800 and USD 1,000, for the latest releases (Source: New York Times).
In raising the prices of its iPhones last year, Apple did not sell more units, but experienced a 14% increase in revenue (Source: Fortune). However, should other tech companies, even those in the Caribbean, consider implementing Apple’s strategy to mimic its success? Before they do, they should take onboard the following considerations.
Premium products may have greater pricing latitude
To considerable degree, all of Apple’s products tend to be priced towards the higher end, and as a result, it is not necessarily a product that ‘everyone’ can afford. Additionally, much is made of the quality of the products, especially in terms of their aesthetics and usability, which again is used suggest its premium nature, and correspondingly, its appeal to those who appreciate those qualities, and are prepared to pay for them.
Brands or product lines that are set at lower price points many find that their customer base might be more price-sensitive. Additionally, there might be greater competition and a wider choice of products. Hence, should a modest price hike be implemented, although consumers may like a particular brand, price is likely to be a pivotal consideration in their purchasing decisions, and they may instead opt to go with another brand that is more aligned with their budget.
Brand loyalty cannot be underestimated
Individuals who have owned Apple products in the past, tend to be fiercely loyal to the brand. Typically, they only switch to another manufacturer under duress, such as if they cannot immediately afford an Apple device, or if they are not in a position to purchase their desired Apple device, but an urgent replacement is required.
Once again, for more budget-friendly product lines or brands, brand loyalty might not be as high, as for premium products or brands. It is thus important for businesses to understand the extent to which their customers are loyal to the products or services they offer, and would still be enthusiastic supporters if prices were increased.
Loss of customers is likely
Depending on the degree of the price increase, a business could experience a decline in its customer base. Either some customers can no longer afford the product or service, or cannot justify the product or service against the increased price point.
Although revenue is almost always an important measure, and could actually improve, some businesses many also place an emphasis on growing, or at the very least maintaining, the size of their customer base. Hence, it should be appreciated that the metrics that are important to the organisation could be affected – both directly or indirectly – and the implications ought to be carefully considered before the proposed price changes are implemented.
Understanding the end game
Finally, and within the context of Apple, experts are of the view that since the current smartphone market is reaching saturation. Hence, the price increases Apple has effected is just another way for it to continue to keep revenues up, since the number of devices the company can sell is likely to either remain stagnant or decline.
However, year-on-year price hikes may not be a tenable business strategy long-term. In addition to continuing to produce quality products or services, it is likely that market will evolve with some competitors adjusting their own business models accordingly. So, while a price hike may seem novel initially, its impact may only be short-term, as market forces adjust, and new strategies may need to be employed.
Image credit: Pixabay (Pexels)
I’d never bought an Apple product before, but I bought a MacBook Air about two years ago because it met my specific requirements for weight, battery life, etc. and because as much as I wanted to love Linux, I was tired of having to muck about with it in order to get it to do simple things.
But price was a factor, and the MacBook Air was the most expensive computer I considered. Had it been $200 more, I might not have made the switch. I realise there will always be a higher price tag attached to the Apple logo, but they should tread cautiously, particularly when their products are no longer advancing as innovatively as they did when Jobs was running the place: https://www.macworld.com/article/3318217/macs/mac-mini-mac-pro.html
Steve,
That is certainly a valid point, re Apple’s price versus innovation.
It will be interesting to see what Apple does in the next year or so. People are already holding on to their Apple devices a bit longer, and not replacing them as frequently, so their customers may already be getting close to the limit of how much they might be prepared to pay.
Question though: Should need another laptop in the not-too-distant future, do you think you will buy another MacBook/Apple device?
Good points.
Price adjustments to any product category is largely determined by elasticities of demand for that product within its market segment. One cannot just wake up one morning and say I am increasing the price for product A, let’s see what happens…
Kamutula,
That is so true!
However, companies can also find themselves getting into price wars, which can ultimately diminish the value of products/services being offered…
On the other hand, if the product or service is truly good/truly worth it, and after careful research and consideration, it may be better to rank it as a premium product/service – recognising though that the prospective customer base might be considerably smaller than for a more mass market product/service.
One famous business person calls it FOMO – a cocky acronym for “fear of missing out”. But in terms of pricing, FOMO has only one result: a “race to the bottom”. A more solid and reassuring strategy is to formulate and execute a strong value proposition.